It's that time of year again when the thought of getting your tax return completed and your taxes paid may be hanging over your head. If you own a home business that is not a corporation, chances are you'll need to file IRS Schedule C - Profit and Loss from a Business with your federal tax return.
Unless you planned well in advance or were owed a refund, you may be faced with a last-minute deadline to get your tax return and Schedule C completed. And, while you can file an extension so long as you send off a payment for the amount you think you'll owe, this is a perfect time to take stock of your home business' financial situation and record keeping practices.
Personal Resolutions and Business Resolutions
In our personal lives, it's common practice to make resolutions when the new year arrives January 1st. We might promise to lose weight, exercise more, eat a healthier diet, visit relatives more often, practice random acts of kindness, achieve a better work - life balance or make any of a myriad of promises we hope to keep throughout the year ahead (including starting a business for those who haven't already done so).
While most small business owners know that early January is a good time to examine their business activities and draw up an effective marketing strategy in the year ahead, April's tax time is a perfect opportunity to examine your financial and record keeping performance and procedures. IRS Schedule C and other federal tax forms can be instrumental in helping you do just that.
If your business operates on a calendar year basis for tax purposes (January through December), your taxes must be postmarked by April 15th – or the first business day thereafter – each year. At no other time during the year will you be as likely as you are now to have such an in-depth picture of your business income and expenses.
Synching Schedule C with Your Records
For those who complete Schedule C – Profit or Loss from Business (Sole Proprietors) – themselves manually, with the aid of tax software, or with the help of a tax preparer, the process of completing your tax return is much simpler if you set up your income and expense records according to the categories used on the IRS Schedule C form.
- If you prepare your taxes by hand, you'll just need to transfer the totals for your matching categories to your Schedule C form.
- If you use an accountant or other paid preparer to prepare your taxes, you'll be able to categorize business expenses for your preparer more easily and may save time and money as a result.
- If you use tax software, such as TurboTax, you'll be asked for your expenses according to the categories used on IRS Schedule C have already anyway. You'll save a lot of time and aggravation if you have already broken out your expenses in whatever bookkeeping system to match the expense categories listed on the IRS form.
Getting your books to match the Schedule C line items is bound to save you time and aggravation anyway you look at it. If you experience difficulties matching your expenses to the categories used by the IRS on Schedule C, it's a clear sign you need to make some adjustments to your bookkeeping procedures.
An added benefit of synchronizing your expense categories with Schedule C expense categories is that you may find that you procrastinate less in filing your tax return because it becomes less of a daunting task.
While you are preparing your tax return, take the time to learn from the experience to make future tax returns and Schedule Cs easier to complete and to take advantage of the IRS, which is a free bank of valuable knowledge.
